As I have repeatedly stated, my research indicates that the secular bull market top in equities occurred in October 2007 and that the decline into March 2009 was merely Phase I of the ongoing secular bear market. My research also continues to indicate that the rally out of the March 2009 low is the rally separating Phase I from Phase II of the ongoing secular bear market. My cyclical and statistical work suggests that 2010 should prove to be a pivotal year and that depending on exactly how the statistical and cyclical data unfolds, we could see the setup that is required to usher in the Phase II decline of the ongoing secular bear market.
One of the most dangerous aspects of this bear market rally is that virtually no one believes or understands that we are still operating within the context of a much longer-term secular bear market. Once this becomes obvious, the sheeple will begin to panic and the stampede will take root. This is in part why Phase II declines prove to be even more devastating than the initial Phase I decline.
In addition to the bear market rally in equities, which began at the March 2009 low, I believe that most every other asset class has also been in counter-trend moves. Gasoline bottomed in December 2008. Corn also bottomed in December 2008 as did soybeans and copper. Crude oil then followed with its bottom in January 2009. Lumber also bottomed in January 2009. This was all reflected in the CRB index with a bottom there in February 2009. The Housing Indexes then followed with a bottom in March 2009 as well. Preceding these lows, both gold and silver found their lows in October 2008. In the case of gold, it was able to move to new highs, while silver has not.
I want to remind everyone that with the exception of housing, which peaked in 2005, these asset classes had all pretty well advanced together into their market tops in 2007 and 2008. Following the late 2008 and early 2009 lows, all asset classes have bounced together. My point here is that this has all been a liquidity driven phenomena in which everything basically moved together. It is my belief that in many cases we are also seeing counter-trend bounces by these asset classes as well. Point being, once these counter-trend moves are done, we will most likely again see all asset classes move lower in conjunction with the secular bear market in equities. Reason being, the credit contraction and purging of the excess credit is not yet over. The stimulus packages were an absolute waste of money and we will see more of this once the Phase II decline sets in. The difference this time around will be that it won't matter. The stimulus packages that were seen in conjunction with the Phase I decline all occurred as the Phase I decline was making its bottom anyway. Yes, this stimulus may have helped that bottoming process along the way, but they alone did not create the bottom. No, the Phase I bottom was a natural process that was going to occur anyway. Once the Phase II decline begins, the politicians will again do what they do best, spend and waste money, but because the natural forces of the Phase II decline will just be getting underway, these natural forces will overcome the stimulus.
Besides the natural forces and progression of a long-term secular bear market, the other phenomena we are dealing with here is something called Kondratieff winter. The signs of K-wave winter were best summarized by David Knox Barker in his book titled The K Wave.
"Global Stock Markets Enter Extended Bear Markets"
I believe this began in 2007.
"Trends During Winter: Stocks Down, Bonds Up, Commodities Down"
I believe this longer-term trend was set into motion in 2007 and 2008 and is still underway.
"Interest Rates Spike In Early Winter Then Decline Throughout"
In June 2004 the Discount rate was at 2.00%. By June 2006 it was at 6.25% and since August 2007 the Fed cut the Discount rate back to .50%. I believe that the spike into 2006 was the early winter spike.
"Economic Growth Slow or Negative During Much of Winter"
This too should be obvious to all.
"Commercial and Residential Real Estate Prices Fall"
This obviously began back in 2006 and is still in a major slump.
"Bankruptcies Accelerate and High Debt Eliminated by Bankruptcy"
This has obviously begun and is no doubt related to the housing and credit bubbles.
"Social Upheaval and Society Becomes Negative"
I think that this is yet to come. We will likely see this as the Phase II decline begins.
"Banking System Shaken and New One Introduced"
The banking system was shaken in 2008, but there should be much more to come.
"Free Market System Blamed and Socialist Solutions Offered"
This should come with the Phase II decline as well.
"National Fascist Political Tendencies"
More to come.
"Debt Level Very Low After Defaults and Bankruptcy"
This has only just begun and there is much more to come.
"Trade Conflict Worsen"
"View of the Future at a Low Ebb"
This low point should be seen as the Phase II and Phase III lows are made. We are not there.
"New Work Ethics Develop Since Jobs are Scarce"
If I can assure you of one thing it is that this has not happened. This will be great to see.
"Greed is Purged from the System"
Everyone is still worried about missing the rally. I can absolutely assure you that this has not happened yet.
"Real Estate Prices Find Bottom"
This has not happened.
"There is a Clean Economic Slate to Build On"
Not happened yet.
"Investors are Very Conservative and Risk Averse"
Again, this has not occurred.
"Interest Rates and Prices Bottom"
Interest rates obviously can't go much lower, but they can remain low and prices have not reached a bottom.
"A New Economy Begins to Emerge"
Has not happened. We should look for this perhaps toward the end of the decade.
"Stock Markets Reach Bottom and Begin New Bull Markets"
This is still a long ways away.
These signposts have been and can continue to be a good guide for those that understand the environment in which we are operating. Ultimately these signposts are telling us that these reinflation efforts will fail and that the bounces we have seen since late 2008 and early 2009 will ultimately end with the deflationary grind into the K-wave winter low.
Again, the cyclical, statistics and even the Dow theory events that unfold later this year should prove to either further confirm this ongoing counter-trend bounce or to cap it. Understanding these developments as they occur is key and I cover these details in my monthly research letters. In the meantime, I want to warn you here that we are still dealing with an ongoing secular bear market that has not run its course. The politicians and mainstream media did not warn you about the top in equities in 2000, the top in housing in 2005, the top in equities in 2007, the 2008 top in commodities and they are not warning you now of what is to come. Please, educate yourself as to what is really going on here.
I have begun doing free Friday market commentary that is available at www.cyclesman.info/Articles.htm so please begin joining me there. The specifics on Dow theory, my statistics, model expectations, and timing are available through a subscription to Cycles News & Views and the short-term updates. I have gone back to the inception of the Dow Jones Industrial Average in 1896 and identified the common traits associated with all major market tops. Thus, I know with a high degree of probability what this bear market rally top will look like and how to identify it. These details are covered in the monthly research letters as it unfolds. I also provide important turn point analysis using the unique Cycle Turn Indicator on the stock market, the dollar, bonds, gold, silver, oil, gasoline, the XAU and more. A subscription includes access to the monthly issues of Cycles News & Views covering the Dow theory, and very detailed statistical based analysis plus updates 3 times a week.